1. INTRODUCTION

Cambodia is located in Southeast Asia and it is bordered by Thailand, Laos, Vietnam, and the Gulf of Thailand, making it an ideal country for import and export operations. Cambodia’s economy is pivoting towards sectors such as import and export, and is attracting increased investment. Real GDP growth is projected to reach 4.5% in 2022. Furthermore, as the government reopens the country, important sectors such as tourism, hospitality, as well as wholesale and retail, are beginning to recover.

Amid the backdrop of the pandemic, numerous investment projects have nevertheless been permitted by the government to operate in Cambodia. According to the latest available data, there were 134 investment project proposals approved in the first nine months of 2021 by the Council for the Development of Cambodia (CDC), of which 33 were established inside special economic zones. The Ministry of Industry, Science, Technology, and Innovation (MISTI) also approved 124 new industrial projects in 2021, from January to September. It brought the total of investment factories operating in Cambodia to 1,843. Furthermore, there was a significant increase in the import of raw materials for the garment sector in the first eight months of 2021. It is clear to see through the establishment of these new projects that there is positive progress regarding investment in Cambodia, despite the challenging global conditions.

The recently promulgated Law on Investment will assist the new economic recovery plan. Cambodia has also ratified Cambodia-China Free Trade Agreement (taking effect on 1st January 2022), and the Regional Comprehensive Economic Partnership (RCEP); the world’s largest free trade agreement, covering nearly a third of the global population and about 30 per cent of the global gross domestic product – taking effect on 1st January 2022. In addition, the Cambodia-Republic of Korea Free Trade Agreement was signed in October 2021. These agreements should also play a role in attracting increased FDI in Cambodia alongside the new Investment Law.

2. WHY INVEST IN CAMBODIA

Cambodia is a member of the Association of Southeast Asian Nations (ASEAN). Whilst it currently has lower traffic on most goods traded within the bloc, and is in the process of integrating its legal system with those of the other members of ASEAN, investment in Cambodia is very favorable for three main reasons:

3.THE ESTABLISHMENT OF THE COMPANY

Currently, the available forms of business entities that can be established and registered legally in Cambodia are governed by the Law on Commercial Rules and Commercial Register, promulgated on 26 June 1995, the Law on the Amendment of the Law on Commercial Rules and Commercial Register, adopted on 18 November 1999 and the Law on Commercial Enterprises, adopted on 26 April 2005. There are no bars to foreign ownership of any form of business entity in Cambodia, other than the bar to owning land. The available forms of business in Cambodia are expanded upon below:

4. THE 2021 LAW ON INVESTMENT

Promulgated on 15 October 2021, the new Law on Investment (New LoI) aims to establish an open, transparent, predictable and favorable legal framework to attract and promote quality, effective and efficient investment by Cambodian nationals or foreigners. This is to enable socio-economic development in the Kingdom of Cambodia, by increasing Cambodia’s competitiveness, increasing the productivity of local industries, establishing an investment incentives regime and providing protection to investors’ rights.

The 2021 LoI replaces the 1994 Law on Investment and the Amendment of the Law on Investment 2003. The LoI includes 12 chapters and 42 articles which apply to all investment projects registered with the CDC or the Municipal Provincial Investment Sub-committees. These registered investment projects comprise the following:

• “Qualified Investment Projects” (QIPs): A QIP is an investment project that has received a registration certificate from the CDC or a Municipal Provincial Investment Sub Committee.
• Expanded Qualified Investment Projects” (EQIPs): An EQIP is an expansion of a QIP in any form, including expansion of existing production, expansion through product line diversification within the same lines, expansion through the use of new technologies that enhance productivity or protect the environment, expansion of infrastructure to serve basic telecommunications services, or expansion in any other forms to be determined by the Sub Decree.
• “Guaranteed Investment Projects”: A GIP is an investment project registered with the CDC or a Municipal Provincial Investment Sub Committee, and is clearly mentioned as an investment project that is not eligible for tax incentives.

5. UPCOMING DEVELOPMENTS

The Law on Concessions had some notable omissions, and was inconsistent with international standards and the actual conditions of the management and implementation of Public and Private Partnership (PPP). It was replaced by the Law on the Public and Private Partnership (PPP), adopted on 18 November 2021, to promote, encourage and attract more local or foreign investors in Cambodia and it will apply alongside with the new Investment Law. Moreover, the law makers will adopt new legal legislation and frameworks to conduct and clarify the new Law on Investment, specially to adopt a new Negative List in order to replace the current Sub-Decree. Regarding dispute settlements, in order to improve the current dispute settlement mechanisms and to attract increased investment, the government is planning to establish the Commercial Court, which will be competent to enforce the new LoI.

INTRODUCTION

The Cambodian Labor Law, promulgated in 1997, and its amendments in 2007, 2018, and 2021 (“the Labor Law”) apply to all employer-employee relationships where the work is performed within the Kingdom of Cambodia, regardless of the nationality of either employee or employer and the place of the execution of the employment contract.

This newsletter provides a brief overview of the labor compliance for new businesses in Cambodia, as follows:

1. HIRING EMPLOYEES

Preference must be given to Cambodian nationals when hiring. A quota system is in place, generally limiting the number of non-Cambodian nationals to 10% of the total workforce within each enterprise. Work permit and employment cards are required for foreign workers working in Cambodia, while Cambodian workers are only required to have an employment card.

The minimum age for general employment is 15 years old. Any form of child labor or forced labor is strictly prohibited under the Labor Law.

All employees, both Cambodian and foreign, are required to have a medical examination, performed by the Department of Occupational Safety and Health of the Ministry of Labor and Vocational Training, prior to employment. The cost of the examination is the responsibility of the employer.

It is important to note that an apprenticeship under the Labor Law is different from a traineeship or an internship. Employers, employing more than 60 workers, are required to have apprentices for 10% of the total number of workers within the enterprise. If it is not possible to have apprentices as required, the employer must pay an apprenticeship tax as defined in the Prakas of the Ministry of Labor and Vocational Training.

2. EMPLOYMENT CONTRACT

Under the Labor Law, two types of employment contract can be formed. A contract for work to be performed is defined as a fixed duration contract (FDC) if:

• the contract is written,
• the contract contains precise commencement and termination dates, and
• the initial contract duration does not exceed two years, and it can be renewed several times as long as the renewal duration does not exceed two years.

The contract is defined as an unspecified duration contract (UDC) if any of the above requirements are not met.

An employer may enter a probationary contract to evaluate his/her prospect employee’s skill. The maximum probationary period depends on the type of employee. The probationary period shall not be considered as part of the employment contract for either an FDC or a UDC.

3. WAGE PAYMENT

In accordance with the Law on Minimum Wage 2018, the wage must be at least equal to the guaranteed minimum wage which is determined annually by the Prakas of the Ministry of Labor and Vocational Training. However, the current minimum wage only applies to workers in Textile, Garment, Footwear and Travel Goods and Bags sectors. This minimum wage can be served as a floor wage for other business sectors that are relatively unrestricted.

Following the Amendment to the Labor Law in 2018, in addition to the wage payment, the workers under a UDC are entitled to receive a seniority indemnity payment twice a year.

Wages must be paid directly to the employee, unless agreed otherwise. Workers must be paid at least twice per month, and their paydays must not be more than 16 days apart. Deduction of wage is strictly prohibited.

Employers have a duty to inform employees about their wage rate before work begins, and before any change in wage. Each payday, the employee should be provided with a pay slip explaining how the pay was calculated, and sign the payroll ledger proving receipt of the payment.

4. WORKING HOURS AND OVERTIME

The Amendment to the Labor Law in 2021 expressly stipulates that each enterprise can operate with a morning shift, an afternoon shift and a night shift, while the employees can work for a maximum of 8 hours per days, and 48 hours per week. Employees must be given one full day off, meaning 24 consecutive hours, per week. Unless the enterprise’s operations require otherwise, the weekly day off should be taken on Sunday.

In accordance with the Amendment to the Labor Law in 2007, night work is considered to be from 10 pm to 5 am and it shall be paid at a rate of 130% of the day time wage.

Overtime must be compensated at 150% of the employee’s wages, if the overtime is completed before 10 pm. If the overtime is scheduled between 10 pm to 5 am, on Sunday, or a public holiday, then the employer must pay 200% of the employee’s wages. In any event, overtime is generally limited to 2 hours not exceeding 10 hour per day. Overtime is prohibited for young workers.

5. OCCUPATIONAL HEALTH AND SAFETY

New mothers are entitled to take one hour per day, for the first year following the child’s birth, to breast-feed during work hours. Any enterprise that employs more than 100 women must provide a nursing room and a daycare center for all children over 18 months of age. If an enterprise is unable to establish a daycare center on site, then it must pay for the cost of private daycare.

Enterprises employing at least fifty workers shall have a permanent infirmary on the premises of the establishment, workshop, or work site.

6. HOLIDAY, LEAVES AND BENEFITS

Each year, the Ministry of Labor and Vocational Training issues a Prakas determining the number and dates of paid public holidays. The Amendment to the Labor Law in 2021 introduces a new change, whereby there is no longer a substitute holiday to the following Monday if the public holiday falls on Sunday. During the holiday period, the employer must pay their employees their normal wages.

Employers are required to give their employees paid annual leave of 1.5 days per month, for a total of 18 days per year. For every 3 years of continuous service, employees are entitled to an additional day of leave per year.

Employees have the right to request up to seven days of “special leave” for personal and family matters.
The Labor Law is generally silent on the matter of sick leave, other than requiring an employer to suspend a contract for up to six months in case of illness. In other words, the employer is required to hold a sick employee’s position, without pay, for at least six months.

Expectant mothers are entitled to 90 days of maternity leave after one year of continuous service. There is no restriction on whether the leave must start before or after the birth. During the maternity leave period, the organization must pay 50% of the employee’s average wage earned during the preceding 12 months.

7. SUSPENSION, TERMINATION AND DISMISSAL

Employers can discipline employees only if they have evidence of misconduct. All disciplinary action must be proportional to the misconduct. In case of serious misconduct warranting immediate dismissal, the employer has seven days to dismiss the employee after learning of the misconduct. If it is not done within seven days, the right to dismiss is waived.

An employment contract may be suspended for a variety of reasons. During the suspension, the employee is not required to work, and the employer is not required to pay wages. Such suspension cannot exceed two months, and must be approved by the Labor Inspector.

Generally, an FDC terminates at the end of the term specified in the agreement. An FDC can be terminated prematurely only if:

• both parties are in agreement, made in writing and signed in the presence of the Labor Inspector,
• there has been serious misconduct by either party, or
• an Act of God makes performance of the contract impossible.

If an employer wants an employee to stop working at the end of an FDC, the employer must tell the employee in advance according to the table below:

At the expiration of the contract, employees on FDCs are entitled to a severance of at least 5% of the wages paid during the contract period.

An employer can terminate an UDC for any reason relating to the employee’s aptitude or behavior, or based on the requirements of the enterprise. A downturn in the enterprise’s finances constitutes a valid reason for termination. Whereas, an employee can terminate an UDC for any reason. An employer or an employee who wishes to terminate a UDC must give written notice. The notice period is based on the length of employment as set out in the table below:

With reference to Prakas No. 004/15, SERC/ PK dated July 2, 2015 on the licensing and the supervision of derivative instrument trading, a derivative instrument refers to a contract between two parties in which the contract’s value is determined by the fluctuation in value of an underlying asset, such as equity securities, debt securities, currencies and commodities, including crude oil, gold, natural gas, as well as principal protected notes (PPN).

This kind of securities instrument allows sophisticated investors to hedge their positions as well as to, trade, on fluctuations in exchange, interest, or price of specific or other underlying assets.

1. Overview of ship arrest practice in Cambodia

Following Cambodia’s adoption of the 1952 Brussels Convention,
the Cambodian courts have occasionally dealt with ship
arrests. Today, ship arrests in Cambodia are subject to either Book 6 on Compulsory Execution or Book 7 on Preservative
Disposition under the Code of Civil Procedure (“CCP”), promulgated on 6th July 2006 and effective from 6th July 2007. In addition to the seizure of the judgment debtor’s ships for the enforcement of a final and binding Court Judgment or Arbitration Award (Book 6 of CCP), a cla imant ma y apply to court for an order to provisionally attach or dispose of the defendant’s ship.

2. Which international convention applies to arrest of ships in Cambodia?

Since 1957, Cambodia has been party to the International Convention relating to the Arrest of Sea-Going Ships (Brussels, May 10, 1952) (the “1952 Arrest Convention”).

3. What are the conditions to arrest a ship in Cambodia?

The provisions of CCP remain the major source of law for the arrest of ships. Like other executions, the execution against ships requires a title of execution. This requirement is satisfied when there is a final and binding judgment (art. 454 to 486 CCP); if the claimant is enforcing real security rights against the ship (art. 521 to 523 CCP); and if there is provisional attachment against the ship (art. 568 CCP).

• Final and binding judgment: in principle, title of execution in the form of a final and binding judgment is necessary for the execution judge to issue an order for ship arrest. This means that if the judgment is not yet binding, it is not executable and thus the debtor’s ship cannot be arrested in execution. However, a declaration of provisional execution may constitute title of execution for the purposes of arresting a ship, even if the judgment is not yet binding (art. 350 and 455-3 CCP).
• Enforcement of real security rights: upon the creditor’s request, the execution judge or bailiff may order for the ship to be arrested if there is a final and binding judgment or other documents having the same effect, including notarized documents certified by a notary proving the existence of real security rights.
• Provisional attachment:the execution of provisional attachment against a ship must be performed through the method of registration of provisional attachment and/or by ordering the bailiff to confiscate the Certificate of Registry of the concerned ship and submit this certificate to the Preservative Disposition Execution Court.

4. Are there alternatives e.g. saisie conservatoire or freezing order?

Pursuant to Article 568 of CCP, when the ship is not arrested in rem, the creditor may also demand for the execution of provisional attachment by means of ordering the confiscation of the Certificate of Registry of Vessels.

5. For which types of claims can you arrest a ship?

In order to answer this question, we must first ascertain that no matter the origin of the credit, any claim can lead to ship arrest, following court ruling.

• Under the Brussels Convention, ships may be arrested for any of the “maritime claims” (art. 1 of the 1952 Arrest Convention);
• Under domestic law (provisions of Prakas 2003 on resolution of ships registration and provisions related to provisional attachment against ships (art. 568 CCP) and compulsory execution against ships (art. 521 to 523 CCP)), any credit, whether ordinary or privileged, whether arising from a maritime claim or not, is a valid ground to apply to court for the arrest of the debtor’s ship.

6. Can you arrest a ship irrespective of its flag?

Cambodian law does not, for the purposes of ship arrests, distinguish ships according to their flags. However, in practice, the nationality of a ship may be an obstacle in court proceedings in that the court needs to inform the ship’s embassy, in case, the ship is subject to provisional attachment by means of Code of Civil Procedure. Besides that, there are no privileges, except governmental ships, which immunity is protected by international law.

7. Can you arrest a ship irrespective of the debtor?

Once a maritime claim has arisen, ships can be arrested, even if the person liable for the maritime claim is not the ship-owner but is, for example, the bareboat charterer, voyage or time charterer or any other third party (art. 4(1) 1952 Arrest Convention). The ship-owner shall, in order to have his ship released from the arrest, have to give security that guarantees the payment of the claim of the arresting party (art.5 of 1952 Arrest Convention) In other words, the ship-owner will have to pay the security amount to release the ship, even if a third party is the debtor towards the claimant.

8. What is the position as regards with sister ships and ships in associated ownership?

Under article 3(1) of the Brussels Convention , any ship belonging to the debtor may be arrested even where the claim is not directly related to the ship unless the claim pertains to the title or ownership of a particular ship or to disputes between co-owners or the mortgage or hypothecation of this ship. A ship owned by an associated company of the debtor may be arrested only if the associated company is deemed to be jointly responsible for the claim as in the case of the responsibility of general partnership (chap. 2 “general partnership” of the Law on Commercial Enterprises dated 19 June 2005).

10. Do Cambodian courts require counter-security in order to arrest a ship?

Under article 3(4) of the Brussels Convention, the creditor of a maritime claim against the bareboat or time charterer of a ship is entitled to arrest the ship in question or any other ship under the same ownership of the charterer.

11. Is there any difference in respect to arresting a ship for a maritime claim and a maritime lien?

There is no difference in the arrest procedure in relation to maritime claims and maritime liens. However, while maritime claim may be extinguished due to a change in the ownership of the ship, maritime liens remain in full force and effect until the discharge executed by the debtors (art. 52 of Prakas 2003).

12. Does Cambodia recognize maritime liens? Under which International Convention if any?

Even though Cambodia has not acceded to any international conventions relating to maritime liens, Cambodia has adopted its own regulation relating to maritime lien since 2003.

13. What lapse of time is required in order to arrest a ship from the moment the file arrives to your law firm?

We would need a couple of days after our law firm has obtained all the required documents of the claim and sufficient information (ship’s movements, etc.). Once the complete application is handed to the competent court, an interim arrest decision will normally be obtained in a matter of days.

14. Do you need to provide a POA or any other documents of the claim to the court?

There is no need to provide a POA. Obviously, the claimant must provide the documents (art. 541 CCP) evidencing the existence and the cogency of the claim. These required documents are listed in CCP. In addition, when the claim is grounded on the Brussels Convention, the documents must also show the maritime nature of the claim.

15. What original documents are required, what documents can be filed electronically, what documents require notarization and/or apostille, and when are they needed?

Notarized documents of title of execution are required in the case of the execution of a final court judgment (art. 350 CCP) and the execution of security rights against ships (art. 521 CCP) In practice, there have not been any documents filed electronically to court; all required documents (in case of execution of final judgment against ship (art. 455 CCP); execution of security rights against ships (art. 521 CCP); and provisional attachment against ships (art. 568 CCP)) must be handed directly to the competent court.

16. Will Cambodian courts accept jurisdiction over the substantive claim once a vessel has been arrested?

The Cambodian courts may accept jurisdiction over any substantive claims that fall within Articles 8 and 9 of CCP (general provision of competent court). In addition, the Cambodian courts may accept jurisdiction over the substantive claims listed in Article 7 of the Brussels Convention.

17. What is the procedure to release a ship from arrest?

The procedure to release a ship can be divided into two cases: First, a ship arrested to satisfy final and binding court judgment may be released under the following procedures:

• Money Guarantee for the ship’s release: the debtor-in-execution shall provide money guarantee equivalent to the total amount of the claims of the creditor-in-execution, the claims of the creditors who have made demands for distribution, and the execution costs. The court shall, upon motion and prior to the making of any offer for purchase, cancel all of the compulsory execution proceedings except for the distribution proceedings (art. 461 CCP) This is to ensure that if the debtor fails to fulfill his duty, the creditors-in-execution can be paid with the money guarantee following the determination of the distribution proceedings.
• Permission to sail: the court may, upon a motion by the debtor-in-execution, grant permission for the ship to sail if the court finds that business necessity or other good grounds exist, and if the consent of each creditor and the highest bidder or the purchaser has been obtained (art. 462 CCP).
• Cancellation of compulsory sale proceedings: is unable to confiscate the Certificate of Registry of ships within 2 weeks of the issuance of the ruling for the commencement of compulsory sale, the execution court shall cancel the compulsory execution proceedings (art. 464 CCP).

Lastly, in the case of provisional attachment against ships, the debtor may file a motion of objection to the provisional attachment. If it is established by a prima facie showing that clear circumstances constituting grounds for cancelling the ruling of preservative disposition exist and that there is a risk that execution of provisional attachment would cause irreparable damage, the court may order a stay or a cancellation of the provisional attachment with the requirement of security (art. 551 CCP).

18. What type of security needs to be placed for the release?

Under the CCP, security for the release does not need to be money. It can be any negotiable instruments, as deemed appropriate by the court (art. 536 CCP).

19. Does security need to cover interest and costs?

In the case of a ship arrest to satisfy a final and binding court judgment, the security must be equal to total amount of claims of creditors and execution cost (art. 461 CCP) which might also include the interest and costs depending on the parties and/or judge. However, upon issuing a court ruling on provisional attachment against ships, the court must stipulate the monetary amount the debtor is required to place as a court deposit in order to have the execution of the provisional attachment rescinded (art. 457(1) CCP) Thus, it is the court’s decision whether interest and costs are covered.

20. Are P&I LOUs accepted as sufficient to lift the arrest?

P&I LOUs are considered as negotiable instruments under CCP’s provision. Therefore, depending on the value of LOUs and on the agreement between the parties, the court might accept this security. In addition, it might also depend on the agreement between parties. If claimant agrees to accept the LOUs, he/she has to forfeit the claim; as a result, the court ruling against the ships will be cancelled (art. 461 CCP).

21. How long does it take to release a ship?

After depositing the security for the ship’s release, it is only a matter of days before the court ruling cancelling the attachment against ships will be obtained. That court ruling only comes into effect when it becomes final and binding. However, the court may, if it finds it particularly necessary, declare the ruling to come into effect immediately (art. 547(1) CCP).

22. Is there a procedure to contest the arrest?

It is possible to contest the arrest; the debtor can file a motion of objection before the court that issued the ruling of attachment against the ship (art. 550 CCP). In such a case, it is important that the debtor prepares all relevant documents supporting his reason for contest, such as the non-existence of the debtor’s claim or others good grounds.

23. What period of time will be granted by the courts in order for the claimants to take legal action on the merits?

According to Article 557 of the CCP, in the case of provisional attachment against a ship, the claimant must take legal action on the merit within a period deemed reasonable by the Court (the period shall not be less than 2 weeks) after the said ship has been arrested; otherwise the arrest will automatically be held to be cancelled.

24. Do Cambodian courts acknowledge wrongful arrest?

Cambodian judges rarely accept a claim for compensatory damages for wrongful arrest, unless bad faith or malice on the part of the arresting party is clearly established.

25. Do Cambodian courts acknowledge the piercing and lifting of the corporate veil?

Piercing the corporate veil is not common. Therefore it is not normally possible to arrest the property of owners associated with the debtor. The exceptions are general partnerships, since the general partners are personally liable for the debts of the company. Where limited companies are concerned, Cambodian judges might reply on the theory of “fiction” instead of the theory of “appearance” to pierce the corporate veil. The company owning the ship must be proved to be fictitious. Considerations that the court may take into account include unity of management, absence of participation to the profits and/or debts, unequal distribution of the dividends, same beneficial or associated owner, etc.

26. Is it possible to have a ship sold pendente lite; if so how long does it take?

Yes, if arrested property is subject to rapid deterioration or is expensive to retain in custody, the Bailiff is entitled to sell such property at the request of the claimant, even if the court has not yet given a judgment. In theory, Articles 565 and 568 of the CCP may apply also to ships under arrest. In practice, the lapse of time of the procedure of judicial sale depends on the complexity of the case.